Before the
FEDERAL COMMUNICATIONS COMMISSION
Washington, D.C. 20554
In the Matter of )
)
Unbundled Access to Network Elements ) WC Docket No. 04-313
)
Review of the Section 251 Unbundling ) CC Docket No. 01-338
Obligations of Incumbent Local Exchange )
Carriers )
COMMENTS OF THE
OFFICE OF ADVOCACY, U.S. SMALL BUSINESS ADMINISTRATION,
ON THE NOTICE OF PROPOSED RULEMAKING
AND INITIAL REGULATORY FLEXIBILITY ANALYSIS
The Office of Advocacy of the U. S. Small Business
Administration ("Advocacy") submits these Comments to the Federal
Communications Commission ("FCC" or "Commission") regarding its
Notice of Proposed Rulemaking ("NPRM")1 in the above-captioned
proceeding. In the NPRM, the Commission seeks comment on the
unbundling obligations for incumbent local exchange carriers
("ILECs") under the Telecommunications Act of 1996 and what
network elements should be unbundled and made available to
competitive local exchange carriers ("CLECs"). The FCC states
its objective is to encourage facilities-based competition.2
The FCC asked how it could accomplish these regulatory goals and
be in compliance with the DC Circuit's recent decision vacating
and remanding the Commission's earlier Triennial Review Order.3
Advocacy has reviewed the NPRM and the FCC's initial
regulatory flexibility analysis ("IRFA"), which is required by
Section 603 of the Regulatory Flexibility Act ("RFA"). Advocacy
believes that the FCC did not adequately analyze the impact on
small businesses of eliminating unbundled network elements
("UNEs") or describe alternatives that would minimize this
impact. Advocacy encourages the FCC to analyze the impact on
small businesses and publish alternatives for comment in a
revised IRFA.4
1. Advocacy Background
Congress established the Office of Advocacy under Pub. L. 94-
305 to represent the views of small business before Federal
agencies and Congress. Advocacy is an independent office within
the Small Business Administration ("SBA"), so the views expressed
by Advocacy do not necessarily reflect the views of the SBA or
the Administration. Section 612 of the RFA requires Advocacy to
monitor agency compliance with the RFA, as amended by the Small
Business Regulatory Enforcement Fairness Act of 1996.5
Congress crafted the RFA to ensure that, while accomplishing
their intended purposes, regulations did not unduly inhibit the
ability of small entities to compete, innovate, or to comply with
the regulation.6 To this end, the RFA requires agencies to
analyze the economic impact of draft regulations when there is
likely to be a significant economic impact on a substantial
number of small entities, and to consider regulatory alternatives
that will achieve the agency's goal while minimizing the burden
on small entities.7
On August 13, 2002, President George W. Bush signed
Executive Order 13272 requiring federal agencies to implement
policies protecting small entities when writing new rules and
regulations.8 This Executive Order highlights the President's
goal of giving "small business owners a voice in the complex and
confusing federal regulatory process"9 by directing agencies to
work closely with the Office of Advocacy and properly consider
the impact of their regulations on small entities. In addition,
Executive Order 13272 authorizes Advocacy to provide comment on
draft rules to the agency that has proposed the rule, as well as
to the Office of Information and Regulatory Affairs of the Office
of Management and Budget.10 Executive Order 13272 also requires
agencies to give every appropriate consideration to any comments
provided by Advocacy. Under the Executive Order, the agency must
include, in any explanation or discussion accompanying the final
rule's publication in the Federal Register, the agency's response
to any written comments submitted by Advocacy on the proposed
rule, unless the agency certifies that the public interest is not
served by doing so.11
2. The Availability of UNEs Will Significantly Impact Small
Businesses
The FCC details which businesses are considered "small" for
the purposes of their initial regulatory flexibility analysis
("IRFA"). Unfortunately, a listing of small entities that may be
affected falls short of the legal requirements of the RFA, as the
IRFA did not analyze the impact of the proposed rule on small
businesses.
Section 603 of the RFA requires agencies to consider the
economic impact that a proposed rulemaking will have on small
entities. Unless the head of the agency certifies that the
proposed rule will not have a significant economic impact on a
substantial number of small entities, the agency is required to
prepare an IRFA. The IRFA must include: (1) a description of the
impact of the proposed rule on small entities; (2) the reasons
the action is being considered; (3) a succinct statement of the
objectives of, and legal basis for the proposal; (4) the
estimated number and types of small entities to which the
proposed rule will apply; (5) the projected reporting,
recordkeeping, and other compliance requirements, including an
estimate of the small entities subject to the requirements and
the professional skills necessary to comply; (6) all relevant
Federal rules which may duplicate, overlap, or conflict with the
proposed rule; and (7) all significant alternatives that
accomplish the stated objectives of the applicable statutes and
minimize any significant economic impact of the proposed rule on
small entities. In preparing its IRFA, an agency may provide
either a quantifiable or numerical description of the effects of
a proposed rule or alternatives to the proposed rule, or more
general descriptive statements if quantification is not
practicable or reliable.
The Commission did ask for comment on the economic effect
that various UNE approaches will have on small telecommunications
carriers.12 The RFA encourages the Commission to conduct its own
analysis and rely on public comment to improve the quality of
analysis prior to making a final decision. To correct this
deficiency, Advocacy recommends that the FCC issue a revised IRFA
to analyze the impacts of this rule on small businesses.
According to the latest statistics in the FCC's Local
Telephone Competition Report, CLECs provide 29.6 million access
lines or 16.3 percent of the access lines in the nation.13 CLECs
provide 23 percent over their own local loop facilities, 61
percent use UNE loops, and 16 percent are from resale.14 The
FCC's report showed that the number of lines provided by CLECs
using UNE-Platform ("UNE-P") has increased at a faster rate in
the past five years than the number of lines provided by
facilities-based CLECs that did not utilize UNE switching.15 In
December 31, 2003, the FCC reported that ILECs provided three
times as many UNE-P lines to other carriers as UNE lines.16 This
information indicates that excluding any element from the UNE
list will likely impact small businesses significantly.
A study by the Microeconomic Consulting & Research
Associates (MiCRA Study), which was sponsored by the CLECs
themselves, contains more information on the impact on small
competitive carriers.17 This study showed that UNE-P accounted
for 67 percent of CLEC lines and is the primary mode of entry for
CLECs.18 In order to compete effectively, the MiCRA study said
that CLECs need unbundled loops and transport to reach customers.19
The MiCRA study also paid specific attention to DS-1 loops
and transport and estimated the nationwide market for DS-1 at
slightly more than two million lines.20 The MiCRA study suggests
that CLECs have used DS-1 lines in combination with facilities
provided by the CLEC or the ILEC to offer service, and small
businesses find integrated DS-1 loops and transport economically
attractive.21 The study stated that special access rates are
inflated and are not economical for CLECs.22 The study asserted
that a forced migration from UNEs to special access rates would
increase the costs to the CLEC by 100 percent and would cost an
additional $2 billion annually.23
Advocacy's outreach to small CLECs produced information that
echoed the findings of the FCC's Local Competition Report and the
MiCRA study. CLECs make use of unbundled access to the local
loop and a substantial number of small carriers utilize UNE-P and
unbundled access to switching. Many small CLECs make use of
unbundled transport, especially DS-1, DS-3, and dark fiber.24 The
small CLECs have built their business models around continued
access to these elements. Advocacy will continue to reach out to
small businesses to gather impact data and will file any
additional findings as a reply comment.
3. Alternatives to Minimize the Impact Small Businesses
Regrettably, the FCC did not identify or analyze
alternatives in the IRFA to minimize impacts on small businesses.25
To assist the FCC in its consideration of alternatives, Advocacy
spoke with several small CLECs about possible alternatives that
would minimize the impact on small businesses. Through the
course of our outreach, Advocacy learned that small CLECs that
rely on UNE-P were concerned that the Commission would eliminate
switching from the list of UNEs. To minimize the impact that
elimination of switching would have on their businesses, the
small CLECs proposed tightening the rules involving "hot cuts,"
which are the physical transfer of an access line from one
carrier to another.
Advocacy notes that the D.C. Circuit mentions two
alternatives that involve hot cuts in the USTA II decision. Both
of these alternatives were originally proposed by the ILEC
petitioners as alternatives to the FCC's Triennial Review Order.26
The first is "rolling" hot cuts, which would require unbundled
access to ILECs switching on new lines for 90 days in order to
give the ILEC time to perform the accumulated backlog of hot cuts
simultaneously. The second alternative would require the ILEC to
provide unbundled access to its switch only until it was able to
perform the hot cut.27 Advocacy recommends that the Commission
take a close look at each of these alternatives and the relief
provided small carriers if both are adopted.
If the final rule eliminates a UNE, Advocacy recommends that
the Commission consider adopting a transition period before the
UNE is phased out. Many small CLECs have built business plans
around the assumption of continued access to UNEs. By granting
small CLECs a transition period, the FCC may give these small
CLECs an opportunity to adjust their business plans, raise the
necessary capital, buy and install equipment, and transition
customers from a UNE-P service to a facilities-based one.
It is unfortunate that the Commission did not publish
alternatives for comment. The absence of analysis by the
Commission on regulatory burden and less costly alternatives
ignores the basic requirements of the RFA. Instead, the
Commission passes that responsibility onto the public through the
notice and comment process. My office is offering a few
alternatives for consideration and the small business community
will too.
4. Conclusion
Advocacy recommends that the FCC fully analyze the impact of
the NPRM on small CLECs and consider significant alternatives
that minimize the economic impact on small entities in a revised
IRFA. The Office of Advocacy will continue to reach out to small
CLECs to obtain information on the impacts on small businesses to
assist the Commission in these efforts. For additional
information or assistance, please contact me or Eric Menge of my
staff at (202) 205-6533 or eric.menge@sba.gov.
Respectfully submitted,
/s/ _____________________
Thomas M. Sullivan
Chief Counsel for Advocacy
/s/ _____________________
Eric E. Menge
Assistant Chief Counsel for
Telecommunications
Office of Advocacy
U.S. Small Business Administration
409 3rd Street, S.W.
Suite 7800
Washington, DC 20416
Oct. 4, 2004
cc:
Chairman Michael K. Powell
Commissioner Kathleen Q. Abernathy
Commissioner Michael J. Copps
Commissioner Kevin J. Martin
Commissioner Jonathan S. Adelstein
Jeffrey Carlisle Acting Chief, Wireline Competition Bureau
Carolyn Fleming Williams, Director, Office of Communications
Business Opportunities
Dr. John D. Graham, Administrator, Office of Information and
Regulatory Affairs
Certificate of Service
I, Eric E. Menge, an attorney with the Office of Advocacy, U.S.
Small Business Administration, certify that I have, on this
October 4, 2004, caused to be mailed, first-class, postage
prepaid, a copy of the foregoing Comments to the following:
/s/ _____________________
Eric E. Menge
Honorable Michael K. Powell Room 7-C250
Chairman Washington, DC 20554
Federal Communications
Commission Jeffrey Carlisle
445 12th Street, S.W. Acting Chief
Room 8-B201 Wireline Competition Bureau
Washington, DC 20554 Federal Communications
Commission445 12th Street,
Honorable Kathleen Q. S.W.
Abernathy Room 5-C450
Commissioner Washington, DC 20554
Federal Communications
Commission Dr. John D. Graham
445 12th Street, S.W. Administrator
Room 8-B115 Office of Information and
Washington, DC 20554 Regulatory Affairs
Office of Management and
Honorable Michael J. Copps Budget
Commissioner 725 17th Street, N.W.
Federal Communications Washington, DC 20503
Commission
445 12th Street, S.W.
Room 8-A302
Washington, DC 20554
Honorable Kevin J. Martin
Commissioner
Federal Communications
Commission
445 12th Street, S.W.
Room 8-A204
Washington, DC 20554
Honorable Jonathan S.
Adelstein
Commissioner
Federal Communications
Commission
445 12th Street, S.W.
Room 8-C302
Washington, DC 20554
Qualex International Portals
II
445 12th Street, S.W.
Room CY-B402
Washington, DC 20554
Carolyn Fleming Williams
Director
Office of Communications
Business Opportunities
Federal Communications
Commission445 12th Street,
S.W.
_ENDNOTES
______________________________
1 In the Matter of Unbundled Access to Network Elements, Notice
of Proposed Rulemaking, WC Dkt. No. 04-313, FCC 04-179 (rel. Aug.
20, 2004) [hereinafter referred to as the "NPRM"].
2 Id., para. 2.
3 United States Telecom Ass'n v. Federal Communications Comm'n,
359 F.3d 554 (D.C. Cir. 2004)[hereinafter USTA II].
4 The accelerated time table on this rulemaking may necessitate
publishing the revised IRFA for comment concurrent with the final
regulatory flexibility analysis.
5 Pub. L. No. 96-354, 94 Stat. 1164 (1980) (codified at 5 U.S.C.
601-612) amended by Subtitle II of the Contract with America
Advancement Act, Pub. L No. 104-121, 110 Stat. 857 (1996). 5
U.S.C. 612(a).
6 Pub. L. 96-354, FINDINGS AND PURPOSES, SEC. 2 (a)(4)-(5), 126
Cong. Rec. S299 (1980).
7 See generally, Office of Advocacy, U.S. Small Business
Administration, A Guide for Federal Agencies: How to Comply with
the Regulatory Flexibility Act (2003), available at
http://www.sba.gov/advo/laws/rfaguide.pdf.
8 Exec. Order. No. 13272 at 1, 67 Fed. Reg. 53,461 (2002).
9 White House Home Page, President Bush's Small Business Agenda,
(announced March 19, 2002) (last viewed February 2, 2004)
.
10 E.O. 13272, at 2(c).
11 Id. at 3(c).
12 NPRM Appendix, para 39.
13 FCC, Local Telephone Competition: Status as of December 31,
2003 (released June 2004).
14 Id. at 2.
15 Id. at Table 4.
16 Id. (showing that ILECs provided 15,161,000 UNE-P lines and
4,260,000 UNE lines to other carriers).
17 Mark T. Bryant and Michael D. Pelcovits, The Economic Impact
of the Elimination of DS-1 Loops and Transport as Unbundled
Network Elements, Microeconomic Consulting & Research
Associations, Inc. (June 29, 2004).
18 Id. at 3.
19 Id.
20 Id. at 7. DS-1 is a digital signal with a bandwidth of 1.544
Mbps in both directions that is capable of transporting data,
voice signals or a combination of the two. A DS-1 channel can
accommodate up to 24 voice-grade channels. It can also be used
to combine voice and data signals or can be cross connected to
interoffice transport facilities and carry signals to another
local wire center or the CLEC's point of presence on the ILEC's
network.
21 Id. at 1-2.
22 Id. at 4.
23 Id. at 9-10.
24 DS-3 is a faster version of DS-1 with a bandwidth of 44.736
Mbps. Dark fiber is unused fiber optic cable. Often times
companies lay more fiber than they need in order to curb costs of
having to do it again and again. Dark fiber can be leased other
carriers who want to establish optical connections among their
own locations.
25 NPRM, Appendix, paras. 38-9.
26 See USTA II at 570.
27 See Id. at 570-71.